Consumer credit boom expected in next five years in Viet Nam

Update:
January, 09/2016 - 10:34

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The central bank's statistics showed that outstanding consumer loans accounted for 8 per cent of the economy's total outstanding loans, which was modest in comparison with the regional average of around 20 per cent and 40 per cent in developed financial markets. — Photo doanhnhansaigon.vn

HA NOI (VNS) — Consumer credit was expected to develop rapidly in Viet Nam in the next five years, driven by rising demand from a recovering economy with a young population.

Dao Van Hung, member of the National Financial and Monetary Policy Advisory Council, said that there was huge potential for development of consumer credit in Viet Nam.

Financial firms and commercial banks providing this kind of service still largely ignored the outskirts and rural areas, where there were a large number of people who don't qualify for banking loans, who were potential customers for consumer credit.

The central bank's statistics showed that outstanding consumer loans accounted for 8 per cent of the economy's total outstanding loans, which was modest in comparison with the regional average of around 20 per cent and 40 per cent in developed financial markets.

The percentage was expected to rise to more than 15 per cent of the total outstanding loans in the next five years, or an average annual rise of 20 per cent, promising a busy market with a diversification of consumer lending packages.

According to Truong Thanh Duc, chairman of the legal club of the Viet Nam Banking Association, more financial companies under commercial banks are expected to join the consumer lending race in the coming years.

Viet Nam now has only six financial companies specialising in consumer financial services, with several banks which provide this kind of service still failing to meet the demand.

Duc said that consumer lending procedures were more flexible and simpler than banking, and coupled with rising demand for consumer credit would fuel the boom.

Interests matter?

According to Duc, interests from consumer lending remain higher than banking rates. This is understandable because it is difficult for financial companies to raise capital, while their lending costs are higher and loans are mainly trust-based.

As the market had not developed risks remained high, Duc said, and added that the development of consumer lending would promote competition, which was expected to lower interest rates with regard to consumer lending.

Still, experts said that interest rates from consumer lending were much lower than black credit. The development of consumer lending would bring a lot of benefits not only to the consumers but also to the economy, they said.

Hung said consumer lending would promote purchase, stimulate production and growth, and policy-making must be based on that approach. — VNS